If you're wondering how you can make your REO offer shine above all the rest and be the winning offer, here are a few tips to help you select the right price and terms:
1) Get the Property History of that REO ForeclosureAsk your buyer's agent to find out the bank's purchase price on the Trustee's Deed or Sheriff's Deed. Generally, it is noted on the document itself, which you can get from the tax rolls or a title company. Compare that price to the price the bank is asking.
Look at the amount of loans that were once secured to the property. Somewhere between the original mortgage balance(s) and the foreclosure sale price is the amount the bank will accept, if the home is under-priced.
2) Determine Comparable Sales for the REO ForeclosureIn many cases, the list price has little bearing on the value of the home. The market value carries the most weight. If you are up against competing offers, other buyers will offer more than list price.
4) Ask About Number of Offers Received for that REO ForeclosureIf there are no offers on the REO home, you can probably offer less than list price and get your offer accepted. However, if there are more than two offers, you will most likely need to offer above the asking price.
If there are 20 offers, bear in mind that some of those offers might be all cash. Banks like all cash offers. If you are obtaining financing, then you may need to increase the price on your offer to be considered.
5) Submit Preapproval LetterIt goes without saying that you do not want a prequal letter. You want a preapproval letter. Get preapproved from your choice of lender in advance.
Moreover, get preapproved by the lender who owns the property. Do not expect to use this lender for your loan, but submit the prepproval letter from this lender, along with the letter from your own lender. Banks don't trust other lender preapprovals but trust their own departments.
6) Don't Ask the REO Bank to Pay for Repairs / InspectionsSometimes banks will pay for repairs, but typically will not agree to do so at the offer stage. If there are problems found during a home inspection , renegotiate after your offer has been accepted.
7) Shorten the Inspection PeriodIf other buyers ask for 17 days, for example, to conduct inspections, and you ask for 10, you will be deemed the more serious buyer.
8) Offer to Split Fees wit the REO bankSome banks will not pay transfer fees, for example. If the buyer offers to split those fees, the bank will feel more amenable to accepting the offer. Same thing for escrow fees.
Many banks negotiate discount fees for title insurance. If the bank will pay for the owner's policy, the ALTA policy might cost a bit more. But it's still a good idea to let the bank choose title if you want your offer accepted.
Consider the Appraisal ConsequencesIf you offer over list price, bear in mind that the appraisal will need to substantiate that price. If you find yourself dealing with a low appraisal, you have options, so don't despair. Remember, the bank will most likely run into this problem with the next buyer who obtains financing.
I can't emphasize, enough, about the importance in knowing the property values in the areas where you choose to conduct your real estate investing business.
Too many times, when I first started out, I'd get a house under - what I thought was, an amazing contract price.
I'd be, totally, stoked about my ability to negotiate a great buy AND the "fact" that I was about to make my $$ !
All I had to do was market and I'd find my buyer, right ?
Wrong - because I'd be marketing a price that wasn't the amazing price I thought it was.....and all my hopes and dreams, along with the "fact" that I was going to get paid - got trashed.
Why ? Because I didn't take the time to educate myself on the current market prices.
Marketing is ALWAYS key - but price is king and keeping pace with this 2011 market is critical.
More factors affect property values, than ever before - like: Unemployment, job loss, pay cuts, ARMs, property DE-valuation, stress and other crap.
It all contributes to an unstable real estate market that is changing, sometimes, weekly.
You'll spend LOTS of time to find, research, walk-through, negotiate and flip - a property.
NOT knowing your values will make it ALL a waste of your time, energy and sanity.
Know your markets based on the previous 2 months values -
Anything over the previous, 3, months values is garbage - in MY opinion.
You also want comps that are REAL close to your subject property - no more than a mile away, if possible.
Also - while it's great to have real comps - like similar square feet, bedrooms, baths, etc - knowing all the sales, overall, as well as how many properties - in the area, are still for sale, how long they've been on the market, what their original list price was, what the current list price is, how many are short sales, REOs, "traditional" and everything else, will also serve you well.
By identifying AND using all your, local, available resources, including your area MLS (Multiple Listing Service), you'll have as best a window, to current values, as possible - will which will make all that time spent, "worth" while.
Remember, there's nothing worse than locking that house up, under assignable contract, only to realize that you can't find a buyer to assign it to.
Don't be "THAT" guy - or gal.
Anyone can invest in real estate and now is one of the best times to learn how. Property values throughout the U.S. are lower than they have been in the past 50 years. This is not news to anybody, but what seems to be news is the prospect of taking advantage of these low prices and buying real estate at huge discounts while you still can. Understandably, people have been a little shaken over the recent crisis in real estate and the lending practices that took place. Taking a bit of time to educate yourself on the advantages of investing and you'll discover that with some of this knowledge you will no longer have to be so apprehensive about it.
Let's look at the top 5 reasons to invest in real estate.
1. Cash Flow - whether you buy with all cash or use today's favorable financing with a low mortgage payment, positive monthly cash flow will occur when the monthly debt is subtracted from the monthly rent. Thus giving you a monthly income from your rental investment.
2. Appreciation - Appreciation is the increase in the property's value, which generally occurs over time and can be increased by investors who add value to the property through repairs and enhancements. This is also a way to create equity in the property.
3. Depreciation - Even with an increase in the property's value the government allows owners a tax deduction of their property over its life span.
4. Tax Benefits - In addition to depreciation, an investor can usually claim the interest portion of his monthly mortgage payment as a tax deduction.
5. Leverage - Leverage is a powerful reason for investing in real estate. If an investor used 100% cash to acquire a house worth $100,000, and the house increased in value by $5,000 in one year, then the investor made a return of 5% (assuming no other costs in this case). However, if the investor obtained 80% financing, only $20,000 cash would be required at the closing table, and a bank or other lender would loan the remaining $80,000 to acquire the property.
Assuming the same $5,000 increase in value, the investor's cash contribution of $20,000 would yield an increase in equity of $25,000 in one year, a 25% return on investment. Taking advantage of the other benefits to investing in real estate, such as cash flow and the increase is even much greater.
With the above example, if the investor is able to bring in even a conservative amount of cash flow per month of $200 this will result in an additional $2,400 per year added to the increased appreciation. Even if the property value stayed stable with no appreciation, you would still see a positive return on your investment.
Adding to these benefits the recent low prices of real estate and the low interest rates for financing and you can see how easy it is to accumulate wealth and become a successful investor.
My name is D. Sidney Potter, and I flip houses. I started in 2002 on a whim with the expectation that I would buy a home and live in it for myself. Inadvertently this home turned out to be one of my first prospects. On this very first home I bought, I waited passively for about three to four months for the home to be completed. After a while, I noticed a funny little thing, and that was that the price started going up phase after phase, by small increments, in the $6,000 to $8,000 range. After the property was completely built, some seven to eight months later, I came to the conclusion that moving to this new home of mine out in Riverside, California, may not be such a profitable idea. In a split decision, I put the home on the market for $425,000 and sold it two months later for $415,000.
Amazingly, out of the gate I grossed $101,000 on my first home and I can tell you that it doesn't always work out this way. You don't always make $100,000 on a flip. And I can tell you, admittedly so, that I got lucky on this one. I hope to help those that have an interest in real estate investing- and more specifically new tract home flipping- in a reduced-risk environment that is both enjoyable, profitable, and reasonably achievable.
More particularly, the objective of this article is to provide a road map and edification for those who wish to invest in real estate, with an emphasis on new tract housing, for the sole purpose of earning a sizable profit upon its completion.
Often in the media, guys like me are referred to as flippers or speculators. Given the critique by the media, you'd think we were a real estate monster of some sort or perhaps the Gordon Gekko of real estate buying! The crux of flipping new tract housing is that the investor simply buys at a low price before the home is actually built. Notwithstanding the actual product type, the home is usually just an empty dirt lot in a subdivision. Normally, it might even be a concrete slab or just in the framing stages, but bottom line, it's a home that hasn't been completed- which makes it ripe for opportunity. The objective, when the home is completed-which is usually several months later-is to immediately resell the home for a substantial profit. This is flip methodology in its simplest articulation.
Although in 2011, and given the change in the market place, a flip today might be better characterized as an" intermediate flip", given the hold strategy required to reap the appreciation. What occurs from cradle to grave, A through Z, start to finish, nuts to bolts is what this article encompasses. It's how to buy a new tract home, hold on to it through its buildup stage and rapidly resell it after having bought it from the developer. During this time of incubation, what I call "flip candidates," given that they haven't fully matured and marinated, are not yet a transferable currency. As a result, they're still just flip candidates, until they're actually bought and closed from the developer. Because until that time, and no matter how much they may have gone up in value during the build-out time, nothing means nothing until you actually own the property yourself.
Having come from a real estate brokerage background where I previously sold shopping centers for five years with two major national brokerage firms in Los Angeles, and combined with my experience as a mortgage operations consultant, where I worked at different bank client sites across the country, which consisted of the evaluation and underwriting of mortgage notes in multimillion-dollar portfolios, I was uniquely qualified-for better or worse-to better understand the acquisition and disposition of investment product and the minutiae of underwriting guidelines that play a very large part in determining whether there's a profit to be made, or will be made in new tract home investing.
You the reader may find that buying real estate, even though you may have the allocated resources, is just not for you. And if that's the case, that's okay. But by reading this article and perusing other real estate books before and after it, you are at least making the well-considered and deliberative decision making that is required when allowing for such a momentous undertaking-which is the buying and selling of real estate in rapid succession.
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